BANKING INDUSTRY Low mortgage rates have homeowners refinancing

Homeowners are using reduced rates to lower their house payments and to consolidate debt.
By CYNTHIA VINARSKY
VINDICATOR BUSINESS WRITER
YOUNGSTOWN -- Low home mortgage rates are one of the only bright spots in the nation's dismal economic picture, and Mahoning Valley homeowners have seen the light.
Mortgage executives at three local banks here are reporting a tremendous growth in home mortgage refinancing deals since rates began dipping to 7 percent and below a few weeks ago.
Most lenders are offering rates in the 7-percent range for 30-year loans, with some going as low as 6.5 percent for 15-year mortgages.
For homeowners who financed at 8 percent or 9 percent, a savings of 11/2 to 2 percent can mean a satisfying drop in their monthly mortgage payment.
Consolidation: Bankers say some consumers are even consolidating credit card debt, auto loans and other debt along with their home mortgage to take advantage of the unusually low interest rates.
And home mortgages, unlike most other debt, are tax deductible.
Refinancing is the process of taking out a new mortgage and using the money obtained to close out or pay off the current mortgage.
Second National Bank of Warren has seen its mortgage lending numbers grow 400 percent since the end of January, and at least half those deals were mortgage refinancings, said Mike Filarski, senior vice president of mortgage lending.
He said a homeowner with a $100,000, 30-year fixed-rate mortgage could save as much as $1,500 a year, or $125 a month, by reducing his mortgage interest by 11/12 percent.
Filarski cited the case of a homeowner with a $30,000 first mortgage who decided to refinance it, consolidating his boat and car loans in with the mortgage. The consumer dropped from three payments to just one and saved $550 a month.
"The savings can be quite dramatic," he said.
What to consider: There are costs to refinancing a mortgage -- title charges, appraisal costs and other fees -- but Filarski said those expenses are generally included in the deal so the homeowner has no out-of-pocket costs.
Closing costs in a refinancing generally total between $1,000 and $1,200. The larger the loan, Filarski said, the faster the savings under a lower-interest rate will offset those costs. "Depending on the size of the loan, the refinancing usually pays for itself in one to two years," he said.
Patrick Bevack, senior vice president of mortgage banking at Home Savings & amp; Loan, Youngstown, said mortgage refinancing deals make up about 60 percent of the thrift's mortgage deals these days -- up from 10 percent a year ago.
Home Savings increased its mortgage staff and recently modernized the computer software for its home lending division, he said, so the company was ready and waiting when the surge of business came.
"We've seen an extreme increase," he said. "The rates are as low as they've been in several years."
The company has seen many homeowners who refinance to reduce the term of their mortgages from 30 years to 15 or 20. With the lower interest rates, Bevack said, many manage to make the reduction with little or no change in their monthly payments.
Others are taking the opportunity to switch from an adjustable-rate mortgage to a fixed-rate plan, or use the equity in their home to borrow more cash for home improvements or other uses.
Trend repeats: Mortgage refinancing also is on the rise at First Place Bank, the new institution created by the merger of FFY Bank of Boardman and First Federal Savings & amp; Loan Association of Warren. They will begin using the new name April 9.
Al Blank, senior vice president of retail lending at First Place, said his staff handled three times as many refinancing deals in February and March as they did in December and January.
Blank said he's seen the trend before -- once in 1993, and again in 1998. The first-time homeowners were most interested in reducing the terms of their 30-year loans, he said, in 1993, but increased cash flow seems to be the priority this time around, as it was in 1998.
Home equity loan rates are not as low as mortgage rates now, Blank said, so some consumers are refinancing to incorporate their equity loans and mortgage into one loan at a lower rate.
Homeowners who plan to stay in their home for several years will benefit most from the long-term savings of a refinanced mortgage, he said.
But refinancing is not for everyone, so Blank said he recommends making an appointment to sit down with a loan officer, consider all the alternatives and calculate the costs and benefits. Refinancing is not a decision to be made in a quick 15-minute session.
"It takes time," Blank said. "The homeowner needs to become an educated consumer, and for us, an educated consumer is wonderful to work with."